Rethinking Nepal’s economy: Resilience through organic, self-reinforcing growth
Nepal stands at a critical juncture—demographically and economically. For years, remittances have propped up the numbers. Behind the GDP figures lies a more fragile reality—an economy that consumes more than it produces and depends on forces it cannot control.
For too long, Nepal sought the easy route to prosperity. It neglected to consider economic resilience, which allows economic growth to be enduring. The result is a brittle economy that is also vulnerable to external factors. A vulnerable economy cannot inspire confidence; it deters the very investment needed to strengthen it.
The path to resilience lies in turning inward, not in isolation but in foundation-building. By strengthening food and energy security, improving the quality of local production, and fostering trust-based growth in sectors like tourism and healthcare, Nepal can create an economy that grows from within—steady, self-reinforcing, and less vulnerable to global tides.
Limitations of conventional economic thinking
While economists play a vital role in guiding national policy, their models—useful as they are—often miss systemwide effects. Nowhere is this more evident than in the treatment of remittances. A presentation on the multiplier effect of remittance inflows can be seductive, yet models rarely capture how dependence on remittances weakens domestic supply chains, discourages entrepreneurship, and hollows out local talent pools.
In the short run, remittances may inflate GDP via consumption. In the long run, they heighten vulnerability to external shocks—such as a fall in global oil prices that cuts remittance inflows, even though lower prices should, in principle, benefit an oil-importing nation like Nepal. The result is an economy that appears to grow while losing internal dynamism and self-sufficiency. A sober reading of the last two decades suggests heavy remittance dependence has been one factor in Nepal’s underperformance relative to some South Asian peers.
Imagine a self-sufficient village becoming remittance-dependent: shops survive, but farmers and value-adding businesses suffer; mechanics, millers, and transporters find less work; employment shrinks; production and labour systems unravel. When external conditions worsen and remittances fall, the village is left with little productive base to fall back on.
Policy implication: Treat remittances as a cushion, not a growth model; prioritize policies that rebuild domestic production and capability.
Economic priorities: Resilience before global integration
Exports and foreign direct investment (FDI) can support development, but for a landlocked country facing scale disadvantages and tough competitors, they should follow—not precede—domestic resilience. The first priority is ensuring Nepal can sustain basic wellbeing regardless of global volatility or political pressure.
Resilience begins with self-sufficiency in essentials—especially food and energy—supported by shorter supply chains that are easier to maintain and less exposed to external shocks. Strengthening local production and internal trade does not reject international exchange; it creates the stability needed to engage global markets meaningfully. This insulation from volatility is a hallmark of successful economies. Since food and energy represent some of the largest leakages in Nepal’s economy, and both can be produced domestically, the effort to strengthen internal circulation should begin with these sectors.
A strategy grounded in resilience makes the economy not smaller but stronger. Reduced vulnerability at home prepares Nepal for global integration on its own terms.
Policy implication: Prioritize reforms to improve the reliability of domestic food and energy production and distribution, and only then focus on exposure to external markets and capital.
Domestic retention of value
Concept: The more times a rupee circulates within Nepal before leaking abroad (through imports, foreign tuition, and so on), the more jobs and income it supports.
Why it matters: Domestic spending sustains farmers, workers, transporters, shopkeepers, and technicians—who then hire and buy from one another. Import-heavy consumption, by contrast, lets value escape and weakens resilience.
Illustration:
Imported path: Rs 1,000 spent on imported LPG exits the economy quickly, leaving only trade margins behind.
Domestic path: Rs 1,000 spent on locally generated electricity stays in circulation and can, in turn, be spent on food from Nepali farmers, supporting truckers and retailers along the way. They, in turn, increase the demand for local electricity.
By expanding the use of domestic products and reducing avoidable imports, Nepal can raise GDP through a stronger internal multiplier. Economists understand this mechanism well, but it remains underused in Nepal’s development strategy.
Policy implication: Focus first on the biggest leakages—food and energy—so each rupee circulates longer at home.
Organic growth over inorganic
Growth driven by foreign aid, advertising, subsidies, or one-off events is inorganic: it spikes, then fades. Nepal should instead prioritize organic growth—steady, self-reinforcing expansion built on quality, reliability, and reputation.
Tourism example: Rather than relying on ad campaigns, build repeat visits and word-of-mouth through a continuous cycle of improvement. The process is simple but powerful: listen → improve → convey, then repeat. Gather feedback from visitors, fix what matters most, and make those improvements visible. Each cycle strengthens trust, enhances reputation, and draws more satisfied visitors.
A tourist who feels fairly treated—who is not overcharged, stays healthy, receives genuine hospitality, and gets more than expected—is likely to return. Such experiences build trust, which is the most enduring form of promotion.
Fund the public infrastructure and services that sustain this process: clean trails, reliable rescue services, clear sign boards, public toilets, digital payment systems, and fair, transparent pricing at tourist nodes. Reduce friction through e-visas, predictable permits, transparent fees, and bundled passes. Measure success by depth of engagement—repeat visits, longer stays, and higher local spending—not just arrival counts.
Policy implication: Institutionalize continuous feedback and visible improvement in tourism services; treat satisfaction and repeat behavior as the true measures of success.
Taking advantage of our strengths
Building on organic growth, Nepal should leverage its existing strengths, beginning with tourism. Every visitor should leave satisfied and informed about Nepal’s broader possibilities—especially reliable, affordable medical and wellness services such as dentistry, eye care, physiotherapy, and hair restoration. A trekker today can be a medical tourist tomorrow—or an ambassador who sends a friend.
In many advanced economies, medical care is prohibitively expensive or slow to access. In the United States, even routine procedures cost several times more than in Nepal. In countries with universal healthcare, waiting lists for non-urgent treatments are long. For such visitors, Nepal’s combination of affordability, competence, and hospitality can be genuinely appealing. Unlike much of what passes for “medical tourism” elsewhere, Nepal can offer the real thing: treatment followed by recovery and travel in the same journey.
Candour about both strengths and weaknesses is essential. Tourist feedback must feed directly into service improvements, infrastructure upgrades, and staff training. This cycle—celebrating what works and fixing what doesn’t—turns visitors into repeat customers and advocates.
Nepal’s comparative advantages are clear: natural beauty, genuine hospitality, cost-effective professional care, and relatively low labour costs. The task is to strengthen these advantages through consistency and quality, so that every visitor departs satisfied and aware of what Nepal can offer them and their networks.
Beyond tourism, Nepal can build on similar principles of value and trust in other niche opportunities—from hosting retirees seeking affordable, comfortable living to offering high-quality personalized tailoring and craft services. Such ventures may seem unconventional, but they draw on the same strengths that make Nepal competitive: warmth, skill, and value for money. Each represents a genuine win-win, expanding Nepal’s reach while reinforcing its domestic capabilities.
Policy implication: Position tourism as an entry point to Nepal’s wider offerings in health, wellness, and craftsmanship, while strengthening quality and reliability across the service chain.
Integrated approach to development
Nepal must manage its resources frugally. It has neither the luxury of time nor the abundance to spend inefficiently. Government expenditures should therefore advance multiple goals at once, creating compounding benefits rather than isolated outcomes.
Example 1: Hetauda–Kathmandu cargo and transport cable car
Consider a cable car system linking Hetauda with Kathmandu. Private enterprises have already built several cable car networks for tourism. Drawing on their experience, Nepal could develop a low-cost, energy-efficient system to transport both goods and people between the two cities.
It should be cheaper to move goods by cable car than by diesel trucks that often weigh several times more than their cargo—diesel that must be mined in the Middle East, refined in India, and trucked across Nepal’s steep terrain. If the cable car system cannot achieve this, there is a flaw in its design or an issue of excessive profit-seeking.
During construction, the Ministry of Agriculture could establish a procurement hub near Hetauda to purchase produce from domestic farmers at fair market prices, with the intent to expand the program nationwide.
The system should be financially self-sufficient—operating without government subsidy—but guided by a public-service mandate to provide reliable and affordable transport. Such an initiative could boost agricultural output, lower food prices in Kathmandu, reduce economic leakage through lower food and energy imports, expand employment, cut emissions, decrease road accidents, and stimulate innovation.
Example 2: Narrow pathways to link rural communities
Many of the rural roads built across Nepal have yielded little lasting benefit and, in some cases, have harmed local communities. Overly wide roads have consumed arable land, worsened erosion, and increased landslides. Designed for large vehicles, they have proven costly to maintain and ill-suited to sparsely populated areas.
Nepal should instead prioritize narrow, well-engineered pathways that connect villages at similar elevations, minimizing steep gradients and annual monsoon damage. Built properly, such paths would require little maintenance and could support affordable, low-emission transport such as bicycles and small electric vehicles.
A network of such pathways would strengthen rural connectivity, preserve farmland, reduce erosion, lower infrastructure costs, and encourage innovation. It would also offer a distinctive model of rural mobility—one that promotes tourism while reflecting Nepal’s ingenuity and respect for its landscape.
Policy implication: Prioritize integrated projects that advance multiple goals—for example, efficiency, connectivity, resilience—within a single investment.
Population decline and student migration
A growing challenge is population decline in many areas, driven by the outward migration of youth for education and work. As destination countries tighten immigration rules, many students spend thousands abroad only to return with depleted savings and limited prospects. This drains foreign reserves, reduces demand for local producers, and accelerates the decline of the working-age population.
A family spending several lakhs per year on tuition and housing abroad removes equivalent purchasing power from local farmers, schools, housing, and services. If permanent residency abroad does not materialize, the household returns financially weaker, and Nepal loses both years of potential contribution and the chance for a young person to build a career at home. Nepal would be wise to reduce outward student migration, especially immediately after Grade 12.
Policy implication: Tighten quality controls and consumer protections around student outflows while building attractive domestic pathways for learning and work.
Proposed policy directions
- Reduce remittance dependence
Introduce moderate exit controls for low-return, high-risk placements abroad while offering skill-bridging programs and small grants for returnees to start or join local enterprises.
Impact: Rebuilds domestic capability, strengthens local employment, and reduces vulnerability to external shocks.
- Reform the temporary foreign worker system
Negotiate bilateral agreements that guarantee fair wages, insurance, and safe working conditions for Nepali workers abroad. Shift focus from volume to value—fewer departures, better protection, and stronger oversight of recruitment practices. Implement measures such as exit clearances for high-risk destinations.
Impact: Protects workers from exploitation, preserves Nepal’s labour strength, and restores confidence for domestic investment and entrepreneurship.
- Regulate outward student migration
Approve study permits only for recognized institutions, license and supervise recruitment agencies with enforceable welfare guarantees, and expand domestic options such as vocational programs, cooperative degrees, and scholarships tied to national needs.
Impact: Protects families from exploitation, slows youth drain, and sustains demand for local education and services.
- Encourage domestic circulation of wealth
Focus national effort where it matters most—on food and energy, the two sectors where value leaks abroad the fastest but can also be most easily retained. Support domestic food production through fair procurement, storage, and transport programs; promote agro-processing clusters near urban markets; and ensure reliable, affordable energy through stable hydropower, wider use of induction stoves, and ropeways or cable systems to reduce diesel transport.
Impact: Reduces dependence on imports, stabilizes prices, strengthens rural incomes, and keeps more of every rupee circulating within Nepal’s economy.
- Build from within
Prioritize reliability in food systems, domestic energy, and logistics before courting large-scale foreign investment. When inviting investment, reward projects that strengthen domestic supply chains—for example, those that source materials locally, contract Nepali service providers, or transfer production know-how to local firms. Require foreign investors to partner with domestic suppliers and to train Nepali workers, ensuring technology and skills stay in the country.
Impact: Aligns foreign participation with national capacity-building so that Nepal can engage with the world on its own terms.
- Promote organic growth in tourism
Develop a permanent mechanism for continuous quality improvement across the tourism chain. Focus public investment on essentials such as safety, sign boards, sanitation, digital payments, and fair pricing for tourists. Measure progress through visitor satisfaction, repeat visits, and longer stays.
Impact: Builds trust and reputation through steady enhancement of quality instead of short-term campaigns.
- Expand tourism’s scope: Health, wellness, and care
Provide reliable information at airports, hotels, and major trails on accredited clinics with transparent pricing. Offer fixed-price care packages and simplified medical-visitor visas for patients and companions. Establish a feedback mechanism to uphold the integrity of partner organizations and ensure consistently high service standards.
Impact: Extends the value of existing visitor flows, generates high-trust, high-value services, and diversifies Nepal’s economic base.
- Integrate development efforts for compounding impact
Design public investments to achieve multiple objectives—economic, social, and environmental—within a single initiative. Each project should create compounding benefits rather than isolated gains. For example, transport projects can also advance energy efficiency, local procurement, and rural employment; agricultural initiatives can simultaneously improve food security, logistics, and trade balance.
Impact: Delivers higher returns on public spending, strengthens linkages across sectors, and embeds resilience into the fabric of development.
- Institutionalize feedback and data infrastructure
Create a national feedback loop—listen → improve → convey—using tools such as QR surveys at key touchpoints, public reporting of results, and visible follow-up actions. This infrastructure need not be limited to tourism, though that would be a natural place to begin.
Impact: Builds transparency, strengthens accountability, and makes improvement a continuous, self-reinforcing process.
Conclusion
Nepal’s first task in the coming year is to make resilience visible and measurable. That begins with cutting the largest leakages—keeping more of every rupee circulating at home through local food procurement, electrification of cooking, and domestic energy reliability. Strengthening these foundations should precede any push for global expansion, so that foreign investment builds upon Nepal’s own productive capacity rather than substituting for it. The projects that the government takes on must solve multiple problems at once. In tourism, the goal should be to turn first-time visitors into repeat guests and advocates, using transparent feedback loops and the expansion of high-trust and high-value offerings such as medical and wellness travel. At the same time, families and youth must be protected from exploitative education and labour pipelines abroad through credible domestic opportunities that make staying an equally rational choice.
Nepal will be strongest when it is resilient first and globally integrated second—organic before inorganic, strengths before stretch. By focusing on leakage reduction, service reliability, and the conversion of visitors into lasting partners, the country can create a cycle of improvement that feeds on itself. Small, practical steps, applied with discipline, will compound into stability, dignity, and durable prosperity.
